Shri Vijay Kanodia,, Kanpur vs Department Of Income Tax

Income Tax Officer I(3) v. Shri. Vijay Kanodia Kanpur C/o Shakti Paper Agencies 26/21, Birhana Road Kanpur TAN/PAN:ABFPK2304K (Appellant) (Respondent)

Appellant by: Shri. Amit Nigam, D.R. Respondent by: Shri. Abhinav Mehrotra, Advocate Date of hearing: 27 11 2014 Date of pronouncement: 23 01 2015

ORDER

PER SUNIL KUMAR YADAV:

This appeal is preferred by the Revenue against the order of the ld. CIT(A), inter alia, on various grounds, which are as under:-

1 The Ld. Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law and on facts in deleting the addition of Rs.21,52,517/- under section 68 of the Income Tax Act, 1961 on account of income from other sources, without appreciating the facts brought on record by the Assessing Officer during the course of assessment proceedings.

2 The Ld. Commissioner of Income Tax (Appeals)-II, Kanpur has erred in holding that the addition made by the AO was based on conjecture and surmise, even though :- (a) the steep and unbelievable increase in the value of shares of Nageshwar Investment Ltd, (b) the assessee's failure to. furnish copy of the transfer deed for the sale of these shares, (c) the evidence of :-2-:

cash deposits in the bank account of the broker, Shri Rajendra Prasad Shah, indicating that accommodation entries were being provided by him, (d) the already exposed racket of brokers from Delhi and Kolkata providing bogus entries for share transactions generating capital gains, and (e) similar transactions in the shares of Nageshwar Investment Ltd. being proved bogus in the case of another assessee, all these facts clearly support the AO's conclusion that the income claimed as capital gains from sale of these shares actually represented assessee's undisclosed income from other sources.

3 The Ld. Commissioner of Income Tax (Appeals)-!!, Kanpur has erred in ignoring similar facts obtained with regard to alleged transaction in shares of Supreme Agro Products Ltd, in respect of which the assessee could not even produce bills for the shares and the brokers, M/s. D N Kansal Securities Pvt. Ltd., through whom these transactions were claimed, could not be traced at their given address.

4 That the order of ld. CIT(A)-II, Kanpur dated 18.6.2012 needs to be quashed and order dated 29.12.2006 passed by the Assessing Officer to be restored.

2. Though various grounds are raised, but they all relate to the addition of Rs.21,52,517/- made under section 68 of the Income-tax Act, 1961 (hereinafter called in short "the Act") after treating the transaction in shares to be bogus.

3. The facts in brief borne out from the record are that the assessee has filed his return of income showing income at Rs.6,25,240/- from all sources claiming a sum of Rs.20,52,017/- as long term capital gain from sale of shares, which has been claimed as exempt under section 54 of the Act upon investment in the new residential property. The Assessing Officer examined the long term capital gain from sale of shares during the course of assessment proceedings. The relevant evidence was placed and the :-3-:

Assessing Officer accepted the source of investment in shares, but doubted the credit entries in the passbook with regard to the sale proceeds of the shares. He accordingly added the sale proceeds of the shares amounting to Rs.21,52,517/- as income from other sources under section 68 of the Act.

4. The assessee preferred an appeal before the ld. CIT(A) and filed written submission before the ld. CIT(A), which was reproduced by him in his order. For the sake of reference, we extract the written submission point-wise on the order of the Assessing Officer, before the ld. CIT(A) as under:-

"Our point wise submissions as regards the allegations raised in the assessment order, reproduced as above, is as under point wise:

1. The A. O. doubted that in the period of 15 months there has been an increase of 30 times in the shares of NIL which is improbable and something unbelievable was manipulated by the brokers. In this connection it is respectfully submitted that NIL is a listed company and the shares have been sold at market rate as per sale bills and market quotations. The A.O. stated that something improbable has been manipulated by the broker. This observation is based on conjectures and surmises and is not related with the assessee. Merely by writing these words in the assessment order and without any evidence on record and blaming the assessee by these observations and drawing an adverse inference is bad in law.

2. In the group A companies there was no such increase at the relevant point of time as alleged in the assessment order. This allegation of the A.O. is baseless as the shares have been sold at market quotations. Others shares have lesser value does not in any way prove that the transaction was sham and influenced by any act of the assessee.

3. The A.O. stated that the assessee failed to produce transfer deeds. In this connection it is respectfully submitted that shares have :-4-:

been sold in the open market and while making any transfer of shares the transactions are routed - through the DMA T Account or by making physical delivery through the transfer deed. Shares of NIL were lodged with Karvy Consultants and shares of SAPL were transferred through transfer deeds which were appended with the shares and given to the share broker. Thus under the circumstances no transfer deed can be produced.

4. Summons were issued to D.N. Kansal Securities P Ltd at his address given on the bills, as alleged in the assessment order, but the same has been returned unserved. This does not mean that the transactions were sham. When nothing adverse has been brought on record and no material has been put for confrontation before the assessee no adverse inference can be drawn.

5. Purchase bills of shares of SAPL were not produced by the assessee. These were filed before the A.O. A copy of the purchase bill is placed in the paper book pages. Thus no adverse inference can be drawn.

6. The A.O. stated in the assessment order that share broker Rajendra Prasad Shah through which NIL shares were sold was providing accommodation entries as is evident from his bank accounts where huge money in cash were deposited. This allegation is baseless without any material on record. Merely reproducing his bank account in the assessment order stating that huge cash has been deposited in the bank account does not in any way show that the assessee had deposited cash in the said bank account to buy long term capital gains. The transaction of cash has to proved by Mr. Rajendra Prasad Shah and this cannot be required by the assessee.

Thus no adverse inference can be drawn.

7. The A.O. stated in the assessment order that Shri Rajendra Prasad Shah paid a sum of Rs. 1674000/- to the assessee from Chartered Bank and HDFC Bank where cash has been deposited. The :-5-:

broker has to pay the money to the assessee as per sale bill and how the assessee is concerned with the account from where payment has been made to the asseesee. The account was under the control of Mr. Rajendra Prasad Shah and not of the assessee. The cheque was received from the broker in a bonafide transaction of purchase and sale of shares and deposited in the bank account of the assessee. Thus no adverse inference can be drawn.

8. The A.O. stated that in a similar case of Smt. Anupama Gupta as duly assessed by DCIT-1, long term capital gains of Rs. 1088900/- on the sale of WOO shares of Nageshwar Investments Ltd. has been surrendered. The assessee is not bound by the decision of any other assessee. Why that lady surrendered and under what circumstances does not affect pima-facie case of the assessee and appeal

From the above, your honour will appreciate that the A.O. did not produce any material during the course of the assessment proceedings in order to show that the transaction of purchase and sale of shares was sham and anything wrong has been done by the assessee. The A.O. completed assessment on whims and surmises. The A.O. acted in an unreasonable manner

Reliance is placed on the following decisions:

The onus to prove that the apparent is not the real is on the party who claims it to be so. C.I. T. (Central) Calcutta vs Daulat Ram Rawatmull 87 ITR 349 (SC). Since the A.O. did not bring anything on record to affect adversely and the allegations of the A.O. are baseless as stated above.

Commissioner of Income Tax vs Sent. Sita Devi Juneja (2010) 325ITR 593 (P&H) and Virinder Bhatia vs deputy Commissioner of Income Tax - held that it is settled law that, no addition can be made on the basis of surmises, suspicion and conjectures. :-6-:

Authorities must act in a fair and not partisan manner. The taxing authorities exercise quasi-judicial powers and in doing so they must act in a fair and not a partisan manner. Although it is part of their duty to ensure that no tax which is legitimately due from the assessee should remain unrecovered, they must also at the same time not act in a manner as might indicate that scales are weighted against the assessee. It is impossible to subscribe to the view that unless those authorities exercise the power in a manner most beneficial to the revenue and consequently most adverse to the assessee, they should be deemed to have exercised it in a proper and judicious manner - CIT v. Simon Carves Ltd.

Officers should not do things in unreasonable manner - In administering a tax law irritation to the assessee is inevitable; an officer is bound to do his duty irrespective of the susceptibilities of the assessees or even at the risk of hurting heir amour propre. But this would not justify the officers functioning under the Act doing things in an unreasonable way - K. Rudra Rao v. ITO evidences collected behind the back1- If the A.O. has collected any evidence behind the back of the assessee, through, never confronted during the course of the assessment proceedings, are not binding without allowing any opportunity and confrontation.

Kishinchand Chellaram vs. has made additions on presumption, conjectures and surmises in the instant case which is not tenable in law and therefore the same is liable to be deleted."

5. The ld. CIT(A) re-examined the issue in the light of written submissions and various judicial pronouncements and being convinced with it, he deleted the addition. The relevant observations of the ld. CIT(A) are also extracted hereunder for the sake of reference:-

"The appellant, before me, relied upon the case of ITO Vs Bibi Rani Bansg 43 DTR 279 Agra bench (TM ) 2010 and Krishna Devi :-7-:

Kejriwai Vs ITO 2010 - TIOL -482 - ITAT (Mum). The gist of judgments were placed on pages 82-86 of the paper book. I have gone through the facts and the judgments as aforesaid. The appellant has controverted each and every objection raised by the AO. All the evidences as regards sales and purchases were filed. The AO has not challenged the purchases and the fact that the shares had been transferred in the name of the appellant. The basic reason for the addition is conjecture and surmise that how could the price of share go so much high and also that another person having such shares did surrender his income u/s 68. The same does imply that the transaction undertaken by the appellant were incorrect. All the transactions were through the stock exchange and through banking channels and through the brokers. If the broker has paid the money to the appellant by depositing cash, here again it cannot be alleged that the appellant had deposited cash in that account. The broker if free to do what he wants and the AO has based his judgment only on conjectures and surmises. The evidences showing the transactions as bogus are not gathered and not placed on the record by the A.O. The assessee has discharged his onus by submitting the brokers note, copy of share certificate duly transferred / allotted in the name of the assessee bank statements and other related details. The sale has been effected through DAAAT account based on the quotations of that day. The purchase of the shares has been accepted by the A.O., but only sale of the same has been doubted. Without the evidence, the suspicion has no role to play and accordingly additions cannot be made on conjuncture and surmises. The reliance is placed on the following cases :

1. 16 Taxman.com 161 Agra IT AT (TM) - Smt. Amita Agarwal Vs. ACIT

The AO has treated the long-term capital gain in shares as sham and bogus and taxed the same as "income from other sources". The Hon'ble ITAT " (TM)" has deleted the addition and upheld the :-8-:

assessee's claim of long-term capital gain. This decision is reached after considering the following cases :

(a) Brijesh Agarwal Vs. ACIT 40 SOT 475 Agra ITAT (TM) - 2010 - The addition made by the AO has been deleted.

(b)ITO -1(3), Agra Vs. Smt. Pallavi Garg ITAT Agra - ITA NO. 192 / Agra

2. 2012- TIOL - 148- ITAT - KOL - ACIT Vs. Abhishek Agarwl - KOL -

The addition made by the AO on account of purchase of shares at a lower price end sale of the same at the higher price on Kolkota Stock Exchange has been deleted as the assessee has submitted the required details of the transactions and DMAT account. The decision is reached by relying on -Kanchan Singh Vs. CIT 221 CTR 456 (Aild.)

- 2009 -suspicion cannot replace the real evidential documents.

3. 17 Taxman.com 197 (P & H) - 2012 of the CTT Vs. Vivek Mehta -

The addition u/s. 68 of long-term capita! gain for purchase and sale of shares has been deleted.

4. 49 DTR 312 (RAJ.) - 2011 - GET Vs. Pushpa Maipani. The claim of the assessee of long-term capital gain on sale of shares has been confirmed.

5. In the case of Sanjay Rathore, Jaipur ITAT - ITA No. 110 dt & 111/2009 dated 29-10-2010.

6. In the case of Dalpat Singh Chaudhary Vs. ACTT - 65 DTR 148 (JODHPUR) - ITAT - 2012.

On consideration of the above discussion and the decision, addition of Rs.21,52,517/- as income from other sources on account of sale and purchase of shares deserves to be deleted. Accordingly, the addition made by the AO is hereby deleted."

6. Aggrieved, the Revenue has preferred an appeal before the Tribunal and placed heavy reliance upon the order of the Assessing Officer. It was also contended on behalf of the Revenue that the assessee has purchased :-9-:

25,000 shares of Nageshwar Investment Ltd. from M/s S.B. Bhutra & Co. at Rs.2.02 per share at a cost of Rs.50,500/- on 26.12.2001 and the payment was made through DD and shares were sold through broker, Shri. Rajendra Prasad Shah for Rs.16.74 lakhs as per settlement dated 13.3.2003 and earned long term capital gains. Similarly, 5,000 shares of Supreme Agro Products Ltd. were purchased on 25.2.2002 by making payment of Rs.50,000/- and the same were sold through broker, D. N. Kansal Securities Ltd. for Rs.4,78,517/- within a short span. Since there was increase of 30 times within a period of 15 months, the Assessing Officer has rightly doubted, as it is improbable and unbelievable. Therefore, the addition made by the Assessing Officer is correct and justified.

7. The ld. counsel for the assessee, on the other hand, besides placing reliance upon the order of the ld. CIT(A), has submitted that the assessee has maintained demat account and the sale has been effected through demat account based on the quotation of the day. In support of his contention, the ld. counsel for the assessee has invited our attention to the quotation as on 12.3.2003, in which the shares of Nageshwar Investment was shown at 58.20; 64.25 and 58.20. Since the shares were sold on the rate quoted by the Stock Exchange and the transaction was effected through dmat account, the sale of shares should not have been doubted. In support of his contention, the ld. counsel for the assessee has also filed copy of share certificate of Supreme Agro Products Limited to show that the amount paid up per share was Rs.10/-. The contract note from the broker is also filed on record. The ld. counsel for the assessee has further contended that in the light of this evidence, the transaction in shares cannot be doubted. The Assessing Officer has simply doubted the sale of shares without looking to the fact that shares were sold at the rates quoted at the Stock Exchange. Purchase of shares was never doubted by the Assessing Officer. Therefore, the capital gain declared by the assessee was rightly accepted by the ld. CIT(A).

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8. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that the Assessing Officer has not doubted the purchase of the shares. He has doubted the sale consideration of the shares, as there was substantial increase in the value of shares. In order to establish the sale transaction to be genuine, the assessee has placed copy of the quotations of the Stock Exchange as on 12.3.2003, in which the rate of shares of Nageshwar Investment was shown at 58.20 and

64. The shares were sold on 23.3.2003 at Rs.67.05 per share, though the quotation as on 23.3.2003 is not available on record, but in the light of the quotation dated 12.3.2003, the contention of the assessee that shares were sold at Rs.67.05 per share cannot be doubted. No doubt was raised by the Assessing Officer in the purchase of shares. In the light of these facts, we are of the view that the sale consideration declared by the assessee should not be doubted only for the reason that the value of the shares have been increased to 30 times within a span of 15 months. In the case of share transaction, sometimes the value of shares may increase many fold within a span of short period. But for this reason, the transaction cannot be doubted. We accordingly find no merit in the Revenue's appeal and we confirm the order of the ld. CIT(A).

9. In the result, appeal of the Revenue is dismissed.

Order was pronounced in the open court on the date mentioned on the captioned page.

Sd/- Sd/- [A. K. GARODIA] [SUNIL KUMAR YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER

DATED:23rd January, 2015 JJ:0901 :-11-:

Copy forwarded to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR Assistant Registrar